High Risk Offshore Merchant Account
Offshore merchant accounts allow businesses from high-risk industries to easily accept credit card payments from customers across the world. Such merchant accounts are generally more readily available compared to domestic U.S.-based banks. Offshore merchant accounts offer higher processing limits and allow merchants to accept transactions in international currencies. However, it is equally important to understand that offshore merchant accounts come with their own challenges.
In this detailed article, written by the offshore merchant processing specialists at QuadraPay, we provide an extensive overview of offshore merchant accounts, covering their benefits, the application process, KYC requirements, and other related questions. We are confident that after reading this industry insider’s guide, you will have a better understanding of offshore processing and will be able to choose one of the best offshore merchant account providers for your business. Let’s begin.
What is an Offshore Merchant Account?
An offshore merchant account is a specialized bank account established in a foreign country that allows merchants to accept credit and debit card payments from customers worldwide. These accounts are highly beneficial for businesses operating in certain high-risk sectors that face significant challenges in obtaining merchant accounts from American sponsor banks.
Industries That Need Offshore Merchant Accounts
Offshore merchant accounts are extremely important for those businesses that are having a hard time getting approval through local payment processors because of various reasons, including the industry the merchant operates in. Here are a few industries that mostly depend on offshore credit card processors.
The online gaming and gambling industry is considered high risk because of various reasons, including strict government regulations, the potential for high chargeback rates, and the requirement for merchants to accept payments from various countries. Local banks generally do not prefer to work with merchants from such industries; however, in such a scenario, offshore merchant accounts are great solutions for these businesses. This is because offshore payment processors operate from jurisdictions that may have more relaxed gaming and gambling laws. These processors also allow merchants to accept payments in multiple currencies, which makes it extremely beneficial for businesses as they can grow in multiple nations across the world.
The adult industry is possibly one of the most neglected industries as per processing banks. The reasons are quite easy to understand. The most prominent factor that makes the adult industry a challenging option for banks and PSPs is the reputational risk. Banks and credit card processors do not like their names to be associated with any merchant operating in the adult industry, including adult streaming, adult dating, adult toys, adult magazines, adult novelty stores, and adult entertainment. Businesses in the industry also face challenges in getting approval because of the high volume of transactions. It has been observed that the average transaction of merchants from the adult industry is usually higher than that of merchants operating in many other sectors like salons or skincare. This creates credit risk for the acquiring institution. There are various offshore merchant account providers that specialize in providing credit card processing to adult merchants. These processors also allow merchants to accept recurring billing for subscription payments.
Trading industries like Forex and cryptocurrencies are very volatile and can be risky for payment processors. Businesses operating in such industries face uncertainty due to changing regulations and potential fraud risks. A variety of business types operating in such industries, for example, forex brokers, forex trading companies, and forex payout providers, all face critical challenges when it comes to getting the approval of a merchant account. Offshore banks and payment processors are well aware of these complexities faced by merchants, including the requirement of high-volume transaction support, multi-currency payment processing, and lenient compliance requirements. This makes offshore credit card processors an excellent choice for all Forex-related businesses.
Merchants that sell products including CBD, hemp, HHC, Kava, Kratom, THC, vape, bongs, hookahs, paraphernalia, and cannabis-related products have a hard time getting approved for domestic payment processing. This is because of inconsistent regulations and the social stigma surrounding these products in certain regions. Many offshore banks operate in jurisdictions that are very welcoming to merchants from such industries. These processors can be a lifeline for struggling businesses.
Tech support and IT services companies are known to experience high chargebacks and returns. The industry is also infamous for its high fraud ratio. All these factors make domestic and offshore providers extremely cautious about working with tech support merchants. Still, offshore merchant providers are best suited for these companies. Tech support payment gateway offered by offshore providers may be a bit expensive and can have delayed payouts. This is all done to ensure that fraudulent merchants do not get access to the solution. Such processors can handle high-volume transactions and can also offer recurring billing facilities to tech merchants.
The travel and airline industry is considered high risk because customers make payments for services that they are not going to receive immediately. The main problem with the travel and airline industry when it comes to credit card processing is the risk of cancellations due to delayed delivery of services. Another reason is high-ticket transactions, which create the possibility of high chargebacks. Offshore merchant accounts can be a good fit for travel and airline-related businesses as they offer higher processing limits and can support payments in multiple international currencies. This way, businesses can serve local as well as international travelers without any complexities.
Nutraceutical supplements and herbal products generally have a high refund rate, and such businesses operate in legal grey areas because of product claims. Domestic sponsor banks generally do not prefer to work with such businesses; however, offshore payment processors are very flexible when it comes to working with merchants from this industry. They usually have more flexible compliance requirements and can handle slightly higher chargeback ratios as well. This makes offshore solutions the best option for all businesses in this industry.
Benefits of Offshore Merchant Accounts
Offshore merchant accounts come with several benefits for businesses, especially those operating in the sectors discussed above. All of these businesses require global payment processing solutions. Domestic banks are generally the first choice for high-risk merchants, but after various applications to local processors, these merchants often get disappointed and eventually start to approach offshore credit card processors. We have listed some of the key benefits that merchants gain when they work with offshore payment processors.
Easier Approval for High-Risk Businesses: Any business that is classified as high risk because of credit risk, reputational risk, or weak financial standing struggles significantly to get approved for a merchant account from a domestic bank. Local banks and payment processors follow strict rules and generally avoid industries they consider risky. On the other hand, offshore banks are considered more flexible for certain industries. They have an easier approval process, which makes them merchant-friendly.
Access to International Markets: Sometimes domestic acquiring banks limit a merchant’s ability to accept payments from international customers. This is a risk mitigation step, which can be extremely beneficial for the domestic bank. However, it can be a financial loss for the merchant. Offshore credit card processors allow merchants to accept payments in various currencies and offer settlements in the merchants’ home currency. This reduces complications related to currency conversion and enables businesses to grow in various countries.
Higher Processing Limits: Many domestic sponsor banks and payment service providers set very low transaction limits for merchants each month. In most cases, for startup merchants, this is capped at USD 25,000 per month. However, any e-commerce merchant who manages marketing well can easily exceed this volume in just a few days. In such a scenario, business owners require alternative options to continue processing payments. Offshore options serve as a lifesaver for merchants. Offshore banks offer much higher transaction volume limits and sometimes even provide no-limit accounts to select merchants. Any merchant that conducts high-ticket sales or has very high monthly sales volumes should definitely explore such solutions.
Potential Tax Advantages: Some international locations have more favorable tax rules for businesses compared to the U.S. or European nations. Although this benefit might not be relevant to low-volume merchants, it can have a significant impact on businesses with very high sales volumes each month. Such businesses can set up offshore companies with offshore merchant accounts to enjoy lower corporate taxes and even tax exemptions in certain foreign jurisdictions. For example, an American business can set up a company in Latin America and use the services of a local Latin American payment processor. This may simplify tax management, make it more economical, and enable the company to allocate funds effectively. Keep in mind that it is extremely important for merchants to ensure compliance with the tax rules of the jurisdiction where they operate and register.
Bad Credit Scores: Domestic payment service providers often require merchants to have very good credit scores to get approved for a merchant account. In reality, every business faces challenges, and many are unable to maintain perfect credit scores throughout their operations. Such businesses with poor credit scores generally face rejections from local banks. On the other hand, international payment processors may offer more relaxed requirements regarding credit scores.
Asset Protection and Privacy: Some businesses may choose offshore credit card processing solutions for added privacy and extended asset protection offered by foreign jurisdictions. For example, countries like Sweden and the Isle of Man are well known for their stronger privacy laws, which can be used to secure merchants’ business financial information.
KYC Documents for Offshore Merchant Accounts
To get the approval of an offshore merchant account, the business must comply with the KYC requirements. This is a mandatory requirement, and here is the list of the documents that the merchant must produce to the payment processor for the evaluation of the profile.
The first documents required are the business documents, which include the certificate of business incorporation as proof of legal entity formation. It also includes articles of association and organization. Along with this, the merchant can produce details of the company structure and business plan. If the jurisdiction has specific permit or license requirements for conducting business, then the merchant is expected to provide that license as well.
For financial documents, the merchant can produce 3-6 months of business bank statements to display financial strength. For some merchants, the processor may ask for the latest credit card processing history. Merchants must ensure that the history includes the chargeback ratio and monthly sales volume.
For the identity proof of directors and all other major stakeholders, government-issued photo ID such as a passport, driver’s license, or national ID card can be shared with the underwriters. For proof of the company and the directors’ addresses, the merchant must submit a recent utility bill or bank statement to confirm the address.
For e-commerce credit card processing approval through an offshore bank, the merchant must ensure that the website is fully functional and includes the mandatory terms and conditions, refund policy, privacy policy, and contact information. Along with that, the website must also have detailed product information and pricing details. All pages on the website should have active SSL.
The payment processor may ask for a specific license or certificate relevant to the industry. For example, a merchant selling research chemicals may be asked to submit lab certificates. Any business selling cigars or tobacco products may be asked for a tobacconist license. Similarly, a telemedicine practitioner may be asked for a medical license. For e-commerce and dropshipping merchants, a supplier agreement is generally required.
Application Process for Offshore Merchant Accounts
The application process for an offshore merchant account can be easily understood in 5-6 simple steps.
It starts with the research and selection of the right provider. The merchant must identify at least 3 to 4 offshore payment processors that specialize in the merchant’s industry. A comparison of features like multi-currency support, processing limits, and pricing structure should be done. Based on the analysis, the merchant should make the selection.
The next step is the application process, in which the merchant fills out the application form and submits business and personal KYC documents to the underwriters for further evaluation of the file.
The third step is the underwriting review, where the underwriters at the sponsor bank or the payment service provider’s location review the merchant’s risk profile, financial stability, and compliance. In this step, the underwriters may require additional documents from the merchant, who should be proactive in providing such documents promptly to reduce the possibility of delays in account approval.
The last step is account approval, where the provider sends an offer to the merchant. The merchant reviews the term sheet and the contract and then signs it. In general, the approval timeline for an offshore merchant account is between 1 to 3 weeks. Once the account is approved, the provider sends the gateway login details and integration information.
Integration of Offshore Merchant Accounts
Business owners must ensure that the offshore payment gateway is integrated with the merchant’s website for smooth payment processing. Let us quickly look at 6 simple steps involved in the integration of an offshore merchant account.
In the first step, the payment processor sends API and SDK access to the merchant. The API document will have detailed information about various webhooks available on the payment gateway. Along with that, it will also include some sample codes that the merchant may use for integration. The payment processor may also provide a ready-to-use plugin for some shopping carts.
The next step is setting up the payment gateway. For this, the merchant configures the website to handle transaction information and send it to the payment gateway for processing. The payment processor and the merchant must ensure that the transaction complies with industry requirements.
Once the integration is done, the payment processor enables multi-currency processing for the merchant so that the merchant can accept international transactions. Along with that, the payment processor also activates linked payment methods for credit cards, debit cards, e-wallets, and bank transfers.
To ensure that the integration is done correctly, the merchant is required to perform some test transactions. For this, the merchant processor will share test credit card details and evaluate the response codes of these test transactions.
Merchants and the payment processor must ensure that various fraud detection and prevention tools are activated, such as the address verification system, 3D secure transactions, and AI-based fraud identification and prevention tools.
The last and final step is to accept live transactions. In this step, the merchant starts accepting credit card and debit card transactions from customers. The merchant can always go back to the processor if there are any technical challenges.
The Future and Scope of Offshore Merchant Processing
At QuadraPay, we are confident that offshore merchant processors will continue to play a key role in the global e-commerce industry. While domestic processing companies are becoming very choosy about the industries they wish to support, these offshore payment gateway companies are still open to merchants from a variety of industries. The stricter domestic processes become, the more demand for offshore credit card processors will increase. However, it is important to remember that offshore credit card processors will not always be as flexible as they are today.
International processing companies are also required to comply with regulatory requirements such as AML and KYC checks. They are also required to ensure that merchants do not exceed the prescribed chargeback limits. Processors consistently monitor merchants’ account behavior and use various technologies to ensure that the account stays secure and active for a long time.
FAQ: Offshore Merchant Processing
Q: Is There Such a Thing as a Free Offshore Merchant Account?
No, there is no such thing as a free offshore merchant account because they do not exist. Some providers may offer setup or zero annual charges; however, offering everything for free is just not financially reasonable. For merchants, the quality of service should be more important than looking for free payment processing. Sometimes, providers that claim 100% free processing may create financially risky situations for merchants.
Q: How can offshore payment processing help businesses rejected by U.S. banks?
Any American business struggling to get approval for a credit card processing account through domestic acquiring banks can definitely approach international processing companies. After approval, the merchant can use the offshore account just like any other U.S. merchant account.
Q: What is a common obstacle for e-commerce merchants when setting up an offshore merchant account?
The key challenges that merchants generally face when setting up an offshore merchant account include excessive setup costs, delayed approval, and potential tax implications. However, the team at QuadraPay is ready to assist you. Our partner providers can easily help you set up your business bank account, company, and virtual account in various offshore locations.
Q: Is it necessary to register my company offshore to get an offshore merchant account?
In some countries, the credit card processor may ask the merchant to register a local company. In many other countries, this is not mandatory. For example, a payment service provider located in Sofia, Bulgaria, might not ask a Romanian company to register a business entity in Bulgaria to open a credit card merchant account.
Q: Why is Belize a preferred jurisdiction for offshore merchant accounts?
Belize is a good destination for opening an offshore merchant account. The jurisdiction offers a business-friendly environment with very low corporate taxes, which can help any business reduce operational costs. Additionally, there are various international company formation providers that can help set up a company in Belize without visiting it. Many solution providers in the region and nearby countries offer processing solutions to merchants in various industries, including online gaming, forex and nutraceuticals.
Q: Which countries are the best for offshore merchant accounts?
The best country for an offshore merchant account can vary depending on the merchant’s situation, requirements, and preferences. In general, locations are chosen for various factors. For example, Mauritius is well known for tax benefits, making it a preferred choice for merchants in high-risk industries. On the other hand, Seychelles is well known for its ease of company formation and lenient regulations. Hong Kong is preferred by exporters, AI companies, and SaaS providers. Offshore merchant processors in Cyprus are more comfortable onboarding merchants from fantasy sports, social gaming, and skill competition areas.
Q: Why should CBD businesses consider offshore merchant accounts?
Recently, CBD businesses have started facing serious challenges from domestic payment processors due to regulatory and health compliance issues. Such companies can greatly benefit from offshore payment processors, as countries like Mauritius and Seychelles are considered merchant-friendly. They also offer multi-currency support and better chargeback defenses.
Q: Can businesses in the USA use offshore merchant accounts?
Definitely. A business registered in the USA can use an offshore merchant account. The merchant may be required to set up a business entity in the offshore jurisdiction. American businesses prefer offshore merchant account providers because they want to expand globally, avoid domestic restrictions, and benefit from higher processing limits and multi-currency support.
Q: Are instant approvals available for offshore merchant accounts?
Some providers may offer instant approvals; however, we don’t recommend them. The reason is that an account should ideally only be approved after completing KYC documentation, evaluating the processing history, and ensuring a fully functional website. Once this is done, the merchant can have a much more stable experience with credit card processing.
